Italian manufacturing recovery boosted by stronger output growth

The Italian manufacturing recovery continued in October, with conditions improving at the fastest pace in three months. Nonetheless, the pace of increase was down on the rates seen at the peak of the recovery. The seasonally adjusted Markit/ADACI Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – posted 53.0 in October, up from 52.6 in September.

A key factor raising the headline PMI was an acceleration in the pace of output growth to a three-month high. Italian manufacturing firms have now recorded higher production levels in each month since October 2009. Anecdotal evidence suggested that new order growth, particularly from export markets, had been the principal driver.

In contrast to the trend reported for output, Italian manufacturing firms noted a slowdown in the pace of growth in new business during October. Rising new business levels have been recorded in each month since October 2009, but the latest increase was the weakest for a year. Where higher orders were recorded, this was often linked to new product launches and strong export demand.

Despite recording a slowing in the overall pace of new order growth, Italian manufacturing firms reported an acceleration in the pace of increase of new business received from abroad in October. Although below the highs seen earlier in the year, the rate of expansion was robust.

Higher order volumes, coupled with supply chain disruption, led to a second straight accumulation of backlogs of work during October. Nonetheless, the pace of increase was only mild.

The number of workers employed in the Italian manufacturing sector fell for the 32nd time in the past 33 months during October. Nonetheless, the pace of staff shedding was only fractional. Where headcounts were reduced, panelists commented on the non-replacement of leavers.

Cost pressures in the sector intensified during October, as average input price inflation accelerated to a four-month high. Higher costs were primarily linked by panelists to rising raw material prices. In turn, manufacturing firms raised their average selling prices for the eighth straight month, albeit at a slightly weaker pace than that recorded for September.

In response to higher output, manufacturers raised their buying levels in October. This, alongside shortages for a number of raw materials led to a marked deterioration in supplier performance. Stocks of both pre- and post-production inventories fell over the month.